Cautious tone sweeps markets

Global financial markets saw sentiment shift distinctly more negative this week. A variety of concerns pushed virtually all major equity indices into the red (save for the NASDAQ, which climbed to another record high). Signs of opposition to the details of U.S. tax reform efforts began surfacing while a political scandal in Alabama threatened to reduce the Republicans’ senate majority. A slew of weaker economic data in China, especially a sharp pullback in lending, raised fears of an imminent slowdown in activity and put pressure on industrial commodities. Oil prices declined sharply after industry data showed U.S. stockpiles unexpectedly rising and as Russia was seen to be wavering on the need to extend output cuts.

Stronger U.S. inflation numbers boosted expectations of a steady pace of interest rate hikes from the Federal Reserve. But, even as short term rates rose, a decline in long term yields (‘flattening the yield curve’) suggested investors are increasingly concerned that the pace of rate hikes may crimp economic growth.

The heavily weighted energy sector took the biggest toll on the Canadian benchmark S&P/TSX Composite, which slumped from its record high reached last week. The drop in crude prices also weighed on the Canadian dollar, seemingly reasserting the tight link between oil and the Loonie that dominated the currency’s moves for a number of years until Canadian and U.S. relative interest rates took over more recently. The beginning of the fifth round of NAFTA negotiations, with an overhanging threat of the treaty’s nullification by President Donald Trump, added to the worries of Canadian investors. The health care sector also declined sharply, as big drops were registered by both Valeant Pharmaceuticals International Inc. and Canopy Growth Corp., which together comprise over 60% of the sector’s index weight. Telecom services, technology, and consumer discretionary were among the sectors with the best gains.

In the U.S., consumer stocks generally gained ground after a report that September retail sales increased more than expected, signalling resilient demand heading into the holiday shopping season. Telecommunication services and financials were also among advancing sectors. Regional banks, in particular, got a boost from a senate deal to lift the Systemically Important Financial Institution (SIFI) designation for banks with less than $250 billion of assets. But the S&P 500 retreated slightly overall, with the index unable to overcome the big drop in energy stocks.

Major European indices all fell, taking their cue from global growth concerns, and ignoring continued strength in economic data out of the Euro area itself. An acceleration in German gross domestic product (GDP) anchored a solid GDP report for the region. In the United Kingdom, investors continue to worry about increasingly negative Brexit headlines, inflation stuck at a five-year high, and the fragility of Prime Minister Theresa May’s leadership. In Asia, bond yields and equity prices both reacted with concern over tightening credit conditions in China. And in Japan, stocks retreated from recent 25 year highs as third quarter GDP reportedly decelerated sharply from the previous quarter.

What’s ahead next week:


  • Retail and wholesale sales (September)


  • Leading index (October)
  • Existing home sales (October)
  • Durable goods, capital goods orders (October – Prelim.)
  • University of Michigan sentiment survey (November – Final)
  • Markit purchasing managers indices (November – Prelim.)

Canadian stocks climb to record highs as Middle East tensions lift oil

Growing tensions between Saudi Arabia and Iran – combined with a Saudi crackdown on corruption – lifted oil prices to a two-year high and briefly pushed stock indices in both Canada and the United States to record highs this week. As U.S. President Donald Trump marked the anniversary of his election win – touring Asia with important stops in Japan and China – bond yields eased and tax reform questions grew, taking more wind out of the so-called “Trump trade.” And in New York, the unexpected early retirement announcement of Federal Reserve Bank of New York President William Dudley added more uncertainty back to the future course of the U.S. Federal Reserve monetary policy – all this just one week after Jerome Powell’s appointment as next Fed Chairman seemed to quiet that source of market anxiety.

Canada’s S&P/TSX Composite stretched to another record high early in the week, boosted by strength in energy stocks as crude prices climbed, as well as by a jump in precious metals prices that buoyed the materials sector. “Bond proxy” groups – real estate, staples – that tend to benefit from falling interest rates, were also generally higher, holding onto their gains even though rates turned higher late in the week. The lesser-weighted health care sector saw the most impressive gain, as Valeant Pharmaceuticals International Inc. surged after better than expected financial results, and an announced deal to sell its female sexual dysfunction drug back to the company’s former owners in exchange for a royalty on sales. The financials sector – the flip side of the “Trump trade”, whose profitability improves with higher rates – was among the decliners, as was the consumer discretionary sector, led by weakness in Magna International Inc. The technology sector fell as shares of Open Text Corp. continued the slide that began after last week’s earnings report, and as Shopify Inc. remained under pressure due to concerns raised by a prominent short seller.

Once again, all major U.S. stock indices touched new highs, but later retreated as tax reform worries grew. Performance in the S&P 500 clearly reflected the easing of global bond yields early in the week, especially after dovish comments from Bank of Japan Governor Haruhiko Kuroda. Sector leadership lay squarely with the bond proxies (real estate, staples) while the financials sector led decliners. Department of Justice concerns with the proposed AT&T/Time Warner merger continued to pressure the telecommunications services sector.

European equity indices mostly lost ground, even as the European Commission (EC) lifted its forecast for euro-area growth. But the EC also warned that the United Kingdom was headed for a prolonged slowdown. U.K. Prime Minister Theresa May is coming under mounting pressure over scandals and cabinet resignations, just as European Union negotiators seem to be losing patience with her government in ongoing Brexit negotiations.

Japan and China ranked among the best performing markets globally this week, despite President Trump’s tough talk on trade with both countries as he toured the region. As the yen fell Monday to a nearly eight month low against the U.S. dollar, the Nikkei index surged to its highest level in more than 25 years.

What’s ahead next week:


  • Teranet/National Bank home price index (October)
  • Existing home sales (October)
  • Manufacturing sales (September)
  • Consumer price index (October)


  • NFIB small business optimism index (October)
  • Producer and consumer price indices (October)
  • Empire manufacturing survey (November)
  • Retail sales (October)
  • Import and export price indices (October)
  • Industrial production and capacity utilization (October)
  • Housing starts and building permits (October)

Toronto stocks finally join the record-setting party

Canada’s S&P/TSX Composite index crossed the 16,000 level for the first time this week, setting its first new record high since February. During the intervening eight months, virtually all other major equity market indices globally posted new highs relentlessly without Canada joining suit. The broad advance in recent weeks came as strong economic data around the world pushed oil and commodity prices higher. But in Canada itself, the run of amazing economic data came to a screeching halt as August gross domestic product (GDP) declined. A solid employment report for October did little to lift investors’ moods and the S&P/TSX managed only a small gain for the week.

It was another busy week on the central banking front. The Bank of Japan kept its policy on hold and the Bank of England raised rates, both as expected. The U.S. Federal Reserve’s meeting was also a non-event, indicating there was still a consensus towards gradual rate hikes, with the next coming as early as December. Arguably the biggest central banking news was President Trump’s appointment of Jerome Powell as the next Federal Reserve Chair, to replace Janet Yellen when her term expires in the new year. Powell is seen as possibly the smoothest transition from Yellen because they are closely aligned in policy preferences. After a few weeks of anxiety over the possibility of the job going to the more hawkish John Taylor, Powell’s appointment put downward pressure on North American and European bond yields.

The jump in the heavily-weighted energy sector provided the greatest lift to the S&P/TSX, but the smaller health care sector saw the sharpest advance. Medical marijuana producer Canopy Growth Corporation, which saw a big drop just two weeks ago, surged as Constellation Brands acquired a major stake in the company. Technology and industrials led the declining sectors in Toronto.

In New York, the release of tax reform proposals had little impact on markets, but all major equity indices again notched new record highs. The S&P closed out October with a solid gain, so that it has seen a positive total return for all 10 months so far this year. It hasn’t managed a streak like that in almost 100 years. As in Canada, energy was near the top of the sector leader board, along with real estate, which tends to do well as interest rates decline, and technology which got a big boost from Apple after its earnings report. Telecommunications services was the poorest performing sector, coming under pressure as media reports pointed to the termination of merger talks between Sprint and T-Mobile, and to possible Justice Department opposition to the AT&T/Time Warner merger.

European stocks were broadly higher on strong economic data. Spanish stocks were particularly strong as political risk deflated. Catalan leader Puigdemont fled to Belgium after the central government seized control over the region, leaving the independence movement aimless. In Japan’s holiday-shortened trading week, the Nikkei climbed to yet another 20-year high after the Bank of Japan’s meeting led to a weaker yen.

What’s ahead next week:


  • Ivey purchasing managers survey (October)
  • Housing starts (October)
  • Building permits (September)
  • New housing price index (September)


  • JOLTS job openings survey (September)
  • Wholesale inventories and sales (September)
  • University of Michigan consumer sentiment (November)

Central Banks in the spotlight

The European Central Bank held its most-watched meeting of the year, setting out a roadmap for the withdrawal of quantitative easing (QE) that investors interpreted as moderately dovish. The Bank of Canada also took a more dovish than expected tone in the comments that accompanied its decision to leave its overnight rate unchanged. In Japan, Shinzo Abe’s landslide win in last weekend’s election shored up investor confidence in the continuation of stimulative monetary policy there. In stark contrast, increasing speculation that John Taylor might be the next Chair of the Federal Reserve pushed U.S. treasury yields up, with 10-year treasuries breaking solidly above 2.40%, the highest they have been since last March. The resulting U.S. dollar strength, and weakness in virtually every other currency, including the Canadian dollar and the Japanese yen, was the primary mover of most markets this week.

As the Bank of Canada sounded caution on Wednesday, citing household indebtedness and NAFTA uncertainty (among other things), the Canadian dollar dropped sharply. But strong corporate earnings helped the S&P/TSX Composite index shake off the Bank’s wariness and finish the week at a record high. The staples, industrials, telecommunication services, and technology sectors all posted strong gains, while the materials and health care sectors led decliners.

The S&P 500 managed a small gain (to another record high), but was held back by concerns that a “Taylor Fed” would raise interest rates too far, too fast, and choke economic growth. Also in Washington, comments from retiring Senators Corker and Flake increased fears of political resistance derailing tax reform efforts. Meanwhile actual economic readings and most corporate earnings reports continue to come in strong. New home sales blew away expectations, purchasing managers indices suggested accelerating growth, and third quarter GDP was solid despite the effect of hurricanes. Technology was the leading sector as mega-cap names such as and Alphabet (Google) surged on earnings reports. The telecommunication services and health care sectors saw big declines, driven by subscriber losses at AT&T, and earnings misses at Biogen Inc. and Celgene Corporation.

European equities were mostly higher as investors welcomed the dovish bias to the ECB statements, while keeping a cautious eye on Catalonia as Madrid took control of the region. Meanwhile economic news was also generally supportive. Eurozone PMIs pointed to ongoing expansion, GDP in the United Kingdom was stronger than expected, and the German business confidence index rose to its highest level in history. The yen sell off in Japan helped the Nikkei rally to its highest level since July 1996. The equity index’s step up on Tuesday capped a record 16-day winning streak, during which it gained about 7%. Stocks in Shanghai moved solidly higher as the Communist Party’s congress came to an end, elevating President Xi Jinping’s stature and power. However, Hong Kong equities didn’t get as enthused.

What’s ahead next week:


  • Gross domestic product (August)
  • Industrial and raw materials prices (September)
  • Markit purchasing managers index (October)
  • Employment report (October)


  • Federal Reserve interest decision
  • Personal income and spending (September)
  • Employment cost index (3rd quarter)
  • Conference Board consumer confidence (October)
  • Markit and ISM purchasing managers indices (October)
  • Vehicle sales (October)
  • Construction spending (September)
  • Employment reports (October)
  • Factory and durable goods orders (September final)

Dark anniversary for market passes without fret or consequence

The 30-year anniversary of the Black Monday (October 19, 1987) came and went without generating fits of anxiety in equity markets. Equities were also mostly able to shake off rising geopolitical risk as the Spanish government took steps to suspend Catalan autonomy – the latest move in a standoff over the region’s drive for independence. In the U.S., Treasury yields and the dollar moved higher as investors contemplated the candidacy of John Taylor for the next Chair of the Federal Reserve (a “Taylor Fed” is viewed as likely to take on a distinctly more hawkish stance on monetary policy). Meanwhile, third quarter earnings reports continue to come in with mixed results.

Canada’s S&P/TSX Composite index saw its biggest sector moves driven not by earnings reports, nor by the apparent near collapse of NAFTA negotiations, but rather by other company-specific headlines. The industrials sector posted the best gains, as shares of Bombardier soared on news of the company’s deal to bring in Airbus as a partner on the all-important CSeries passenger jet program. The health care sector led decliners, for once not because of Valeant Pharmaceuticals. Instead it was Canopy Growth Corporation that got smoked. The medical marijuana producer saw a big drop after the TSX said marijuana firms with activities in the United States that might violate the country’s federal law could be subject to delisting. The materials sector was also weak as both base and precious metals declined (with the notable exception of copper). Oil prices started the week higher on fears of new Iran sanctions, and the outbreak of fighting between Iraqi and Kurdish forces near Kirkuk and its oil fields. But by week’s end, higher U.S. fuel inventories helped crude settle back to roughly where it began. The loonie was similarly little moved by the week’s events, but dropped Friday on weaker than expected sales and inflation data.

The S&P 500 Composite index once again touched new all-time highs. Sector strength was seen especially in financial services and health care, driven by strong earnings reports. The real estate and consumer staples sectors led losses, declining as they typically do in the face of rising bond yields. Macro-economic news, including strong manufacturing surveys and a 44-year low in unemployment claims, provided some lift to the broader market, and worries that political infighting will impede or derail attempts at tax reform faded as the U.S. Senate managed to pass a budget resolution.

European stock indices were mostly flat in light of the tension in Spain. Shares in London were further pressured by continuing difficulties in Brexit negotiations, as well as mixed economic news. Although unemployment remains near a multi-decade low, the Office of National Statistics reported that retail sales in the United Kingdom unexpectedly plunged in September. Things were more upbeat in Japan. The Nikkei 225 stock index added to its 20-year high on solid corporate earnings, a weaker yen, and positive sentiment ahead of Sunday’s general election.

What’s ahead next week:


  • Bank of Canada rate decision
  • Wholesale inventories (August)


  • Markit manufacturing and services PMIs (October-preliminary)
  • Durable goods order (September-preliminary)
  • New home sales, pending home sales (September)
  • Wholesale and retail inventories (September)
  • GDP (3rd Quarter-advance)
  • U. of Michigan sentiment survey (October-Final)

Markets surprisingly calm as earnings season kicks off


Reporting of third quarter earnings got underway this week with hopes that continued improvement in corporate results will deliver another month of positive returns to equities. On a total return (USD) basis, the S&P 500 Composite index has been up each month of 2017 so far. There has never been a full calendar year when this has happened all 12 months. Trading was pretty slow in North America (on Monday Canadian markets were closed for Thanksgiving and U.S. fixed income trading shut for Columbus Day), but news headlines bristled with activity that could normally be expected to move markets.


The Catalan push for independence from Spain remained at the forefront of geopolitical news, with investors breathing a sigh of relief when the Catalan leader put off an immediate declaration of independence. Meanwhile tensions between the U.S. and North Korea continued and a diplomatic standoff between the U.S. and Turkey became more heated. Closer to home, U.S. President Donald Trump’s feud with Senator Corker raised concerns that attempts at tax reform will fail, and the President’s comments as NAFTA talks resumed in Washington elevated fears that the trade agreement might collapse. In spite of all these growing risks, markets saw only mild downward pressure on the U.S. dollar and Treasury yields as gold gained. Yields got some support from the Federal Reserve’s September meeting minutes that clearly signaled rates would likely be hiked again in December.


In Canada, the S&P/TSX Composite index managed a fractional gain in mostly listless trading. Major sectors posting advances included industrials and financials, as well as the “bond proxies” (utilities, real estate, staples) that benefited from the downward drift in interest rates. The health care sector led decliners as Valeant Pharmaceuticals came under pressure once again, and the heavily-weighted energy sector extended the losses seen last week when crude prices dropped on news of growing supplies. Even as energy equities slid, oil prices were recovering after Saudi Arabia said it will cut exports, and the Organization of the Petroleum Exporting Countries predicted robust demand next year.


The advance in equities was even less impressive in the U.S. than in Canada, but all major indices, including the S&P 500, the Dow Jones Industrials Average, the NASDAQ Composite, and the Russell 2000, notched new all-time highs. The bond proxies led the gainers along with the technology sector. The telecom services sector stood out on the downside as subscriber losses at AT&T highlighted the threat to the industry of consumers “cutting the cord.”


As tensions in Spain cooled, European equities got an added lift from strong industrial production numbers for the euro area, particularly Germany. Almost all major European equity indices saw modest gains. In Britain, the most recent round of Brexit talks ended with Prime Minister Theresa May’s hopes for a transition deal before year end looking increasingly unlikely. Asian markets were mostly higher as the International Monetary Fund (IMF) raised its forecast for global economic growth and Chinese shares played catchup after missing out on last week’s global rally due to the Golden Week holidays.


What’s ahead next week:


  • Existing home sales (September)
  • Bank of Canada senior loan officer survey (Q3)
  • Manufacturing sales (August)
  • Consumer price index (September)
  • Retail sales (August)


  • Empire manufacturing survey (October)
  • Import price index (September)
  • Industrial production and capacity utilization (September)
  • Housing starts and building permits (September)
  • Conference Board leading index
  • Existing home sales (September)


“Golden Week” for equities

While markets in China and South Korea took the week off for the mid-autumn festival, or “Golden Week” holiday, the S&P 500 Composite index climbed to new highs in four of the five sessions, ending its string of consecutive record-setting trading days at six, the longest such streak since 1997. Canada and most other developed markets tagged along for a nice start to the fourth quarter, a period that traditionally generates the best returns of the year. Spain was a notable exception, where last weekend’s Catalonian independence referendum unnerved investors and pushed the IBEX 35 index to a 15 month low. The tension surrounding the vote also appeared to weigh on the euro and strengthen the U.S. dollar. Disappointing trade data caused the Canadian dollar to retreat further from recent highs, dipping back below 80 U.S. cents.

Most sectors of the S&P/TSX Composite index advanced. The gains were led by the materials sector, especially miners, as copper and other industrial metals saw higher prices. Energy stocks, on the other hand, struggled as crude prices fell. Various reports suggested oil supplies were rising: Reuters reported OPEC output grew in September despite its earlier production cut agreement; oilfield services company, Baker Hughes, said more drilling rigs were in operation; Libya restarted its biggest oil field; and U.S. inventory data showed an increase in stockpiles.

The energy sector was a key laggard in the U.S. as well, where most sectors of the S&P 500 advanced. The financials sector led the gains, boosted by rising bond yields after Friday’s employment report showed rising wages and a tight labour market. Although most weekly and monthly data are currently being whipsawed by the effects of Hurricanes Harvey and Irma, activity is recovering quickly. This week saw new motor vehicle sales at one of the highest paces on record (boosted by replacement of storm-damaged vehicles), strong purchasing managers indices for both manufacturing and services (the latter at the fastest rate of growth in this 93-month expansion), and solid employment reports (allowing for the hurricane distortions.) The materials sector was strong, as it was in Canada, but because of its comparative low weight, had less absolute impact.

Some peripheral equity markets in Europe, including Italy and Greece, lost ground, along with Spain, but major markets moved higher as the eurozone’s manufacturing expansion continues, led by Germany. The manufacturing PMI just hit a 77-month high and has been above the 50 percent mark (a signal of growth) for 51 consecutive months. Equities in the United Kingdom were also higher as Britain’s PMI slightly disappointed but remained at a healthy level. However, the pound weakened as doubts arose concerning Prime Minister Theresa May’s continued leadership.

Most Asian markets were closed at least part of the week, but joined the global stock rally when they were open. Hong Kong’s Hang Seng index led a strong move mid-week and approached a 10-year high. Japanese markets, like those elsewhere, rose on stronger economic data, and the Nikkei 225 index broke out to a 20-year high.

What’s ahead next week:


  • Building permits (August)
  • Housing starts (September)
  • Teranet-National Bank home price index (September)


  • NFIB small business optimism (September)
  • FOMC meeting minutes (September)
  • Job openings and labour turnover survey (JOLTS) (August)
  • Consumer and producer price indices (September)
  • Retail sales (September)
  • University of Michigan consumer sentiment index (October)
  • Business inventories (August)

Oil spikes higher and the “Trump trade” returns

Crude oil prices jumped this week driving big gains in energy stocks. Meanwhile, comments from Federal Reserve Chair Janet Yellen and the unveiling of the Republican tax plan in the U.S. gave new life to the so-called “Trump trade” (gains in equities, bond yields, inflation expectations and the U.S. dollar) reflecting a growing expectation of tax cuts. Gold and most other major currencies retreated as a result.

West Texas Intermediate oil (WTI) leapt to a five-month high on a number of supports: the Organization of the Petroleum Exporting Countries (OPEC) and Russia said they would stay focused on supply cuts and expected the global excess to clear, Turkey threatened to cut off Iraq’s exports following an independence referendum held by Iraqi Kurds, and U.S. industry data showed an unexpected decline in stockpiles. Energy stocks responded with a strong sector performance in Canada, and the best by far in the U.S.

U.S. Treasury yields stepped higher after Yellen said the Fed had to be “wary of moving too gradually.” The hawkish remark drove the greenback to six-week highs and pushed the 10-year Treasury yield to two-month highs. Financial stocks, whose profitability tends to improve with higher interest rates, jumped, while alternative yield plays (utilities, real estate, staples, telecom stocks) all lagged correspondingly. In contrast to Yellen, Bank of Canada Governor Stephen Poloz signaled a more cautious approach on future hikes in his first public words since the bank caught forecasters off guard with the September rate increase. The loonie promptly tumbled back to the level it was trading at prior to the September hike, and Government of Canada bond yields dropped, bucking the global move.

The falling loonie fueled broad strength in the S&P/TSX Composite index. Export-oriented sectors industrials and technology, which benefit from a weaker currency, joined energy and financials in posting solid gains. Materials joined the bond proxy groups in lagging performance, held back by weakness in gold miners as the metal price fell. In U.S. equities, the S&P 500 once again touched a new all-time high as the market advanced. Sector winners and losers mostly paralleled those in Canada, save for a dramatic sell-off of big-cap technology early in the week and its bounce back a few days later as risk appetite returned. Technology remains the clear leader year-to-date.

European bond yields rose alongside U.S. yields, bolstered by the highest European confidence reading in a decade. European stocks also advanced, despite last week’s German election which resulted in a more fragmented parliament that will have a harder time finding consensus on important issues, and the fourth round of Brexit negotiations seeming to cast more doubt on Britain’s economic outlook.

Asian markets were mixed. Japan gained slightly on the back of fiscal stimulus optimism after Prime Minister Shinzo Abe called a snap election, while others fell as North Korea concerns ramped up again. Chinese shares declined as tight restrictions were imposed on the property sector and an escalating push for cleaner air threatened to slow industrial activity.

What’s ahead next week:


  • Markit Canada manufacturing Purchasing Managers’ Index (PMI) (Sept.)
  • Employment report (September)
  • Ivey PMI (September)


  • Markit manufacturing and services PMIs (September Final)
  • Institute for Supply Management (ISM) manufacturing survey (September)
  • Construction spending (August)
  • Vehicle sales (September)
  • Factory and durable goods orders (August final)
  • Trade balance (August)
  • Employment reports (September)
  • Wholesale sales and inventories (August final)

Fed says policy path not deflected by hurricanes

The U.S. Federal Reserve policy statement this week drove most market movements – with the U.S. dollar, global bond yields, and equities all advancing – while precious metals and non-USD safe haven currencies were broadly lower. Once again all three major U.S. equity indices touched new highs, as did the MSCI World index. Gold retreated back below $1,300 USD/ounce, putting an end to its recent breakout to 12-month highs. The loonie also gave back some of its recent gains – in part due to U.S. dollar strength, but also in response to Bank of Canada Deputy Governor Timothy Lane saying the bank is “paying close attention” to the stronger dollar in its consideration of interest rate policy.

As expected, the Fed announced it will begin unwinding its $4.5 trillion balance sheet in October, by not reinvesting some of its bonds as they mature. It also reaffirmed its stance that low inflation was transitory, and said hurricane disruptions would not deflect it from its path to interest rate normalization. Better than expected economic data, including signs that Hurricane Harvey had less of a macro impact than feared, reinforced the case for policy tightening. Investors reacted with heightened expectations of a December rate hike.

In Canada, the heavily weighted financials and energy sectors boosted the S&P/TSX Composite Index to solid gains. Industrials and consumer discretionary stocks were also broadly higher. Energy names dominated the leader board as West Texas Intermediate crude (WTI) extended its move above $50 USD/barrel. Financials moved higher with the global sector in response to rising bond yields – even though Moody’s reaffirmed its warnings about Canadian banks in the face of high mortgage debt and house prices. The bond-proxy groups – utilities, real estate, and consumer staples – struggled in response to rising interest rates. The materials sector also lagged, as precious metals miners tracked lower with gold and silver prices.

Despite reaching new highs mid-week, the S&P 500 finished virtually unchanged, one of the weakest showings among developed equity markets. As in Canada, financials and energy were among top performing major sectors. Lesser-weighted telecom services led the pack on talk of corporate mergers and acquisitions activity. Higher interest rates drove sell-offs in the bond-proxies, while top individual losers were mostly retailers facing more intense competition.

European bonds followed Treasuries lower, lifting rates, and almost all major equity indexes advanced as both the euro and the pound slipped relative to the U.S. greenback (although the euro retraced some of that move by week’s end). As headwinds from the euro’s recent strength faded, the Centre for European Economic Research’s (aka ZEW) economic sentiment indicator for Germany significantly beat expectations going into this weekend’s German elections. Similarly in Japan, a softer yen versus the dollar led to stock gains. The Bank of Japan, like the Fed, kept rates on hold this week, but unlike the Fed, showed no hints of becoming more aggressive anytime soon. Other Asian markets were generally higher as well, following global stock gains and a higher outlook for economic growth in China from the OECD.

What’s ahead next week:


  • Third round of NAFTA talks in Ottawa
  • GDP (July)
  • Industrial and raw materials price indexes (August)


  • New home sales, pending home sales (August)
  • Conference Board consumer confidence (September)
  • Durable goods orders (August)
  • Second quarter GDP (third estimate)
  • Wholesale and retail inventories (August)
  • Personal income and spending (August)
  • University of Michigan Sentiment (September)

Markets breathe sigh of relief

Gold, yen, U.S. treasuries, and other safe havens all declined this week, while the U.S. dollar and most global equity markets advanced after damage from Hurricane Irma, although devastating, was less catastrophic than feared and North Korea, for a time, held off from testing another missile (it was eventually launched, Friday). There were also signs of better tax and fiscal policy progress in Washington. All three major U.S. equity indexes set new record highs, as did the MSCI All-Country World Index. Gold fell 1.9%, taking a break from its recent surge.

West Texas Intermediate crude prices (WTI) briefly climbed back above $50 USD for the first time since early August as refineries disrupted by Hurricane Harvey continued to resume operations and the International Energy Agency (IEA) raised its forecast of global demand growth. Surging energy stocks led the advance of the S&P TSX Composite. Also contributing significantly to the index’s gains were financials, which benefited from a move higher in global interest rates and bond yields, driven by the sell-off in U.S. treasuries and stronger than expected inflation readings in Britain and the U.S. (finally). The yield on Government of Canada 10-year bonds increased 10 basis points, but even greater gains in the yield of its U.S. counterpart and the stronger greenback pushed the Loonie down a fraction of a cent from its two-year high reached last week. Declining sectors included materials, where U.S. dollar strength led to falling industrial and precious metals prices, and utilities, telecom services, and real estate, all considered “bond proxies” that are pressured by rising interest rates.

U.S. equity markets were led by energy and financials, responding to rising yields and the recovery in crude prices, as they did in Canada. Financials got a further boost from insurers reacting to the better-than-expected Irma news. The S&P 500 Composite Index closed at new all-time highs on four of the five trading days. Utilities (a bond proxy) was the only sector registering a loss.

Share prices in Europe were even stronger than those in North America. The Stoxx Europe 600 climbed to a four week high as the higher U.S. dollar and the unwinding of safe haven currency trades let the Euro give back some of its recent strength that has been acting as a headwind for European stocks. The exception to this trend was in Britain. The FTSE 100 posted the only loss among major equity indexes after U.K. inflation accelerated more than forecasted, prompting a jump in the pound and indications from the Bank of England that its first rate hike in a decade might come soon.

Local currency weakness versus the U.S. dollar was the big story in Japanese equities as well. The Nikkei and Topix indexes saw their steepest increases in more than three months as the yen weakened. Most other Asian markets fared well with the ratcheting down of geopolitical risk early in the week and better than expected CPI data in China that reinforced views of improving global growth. The MSCI Asia Pacific and Emerging Markets indexes both reached multi-year highs.

What’s ahead next week:


  • Manufacturing and wholesale trade sales (July)
  • Consumer price index (August)
  • Retail sales (July)


  • Federal Reserve meeting and rate decision
  • Housing starts and building permits (August)
  • Import and export price indexes (August)
  • Existing home sales (August)
  • Conference Board leading index (August)
  • Markit purchasing managers indexes (September)